Income Tax Expense

9 Months Ended

Sep. 30, 2015

Income Tax Expense [Abstract]

Income Tax Expense [Text Block]

INCOME TAX EXPENSE

	Quarter Ended					Nine Months Ended
	September 30,					September 30,
	2015		2014			2015			2014
Millions
Current Tax Expense
Federal (a)	—		—			—			—
State (a) (b)	$0.2		$1.8				$0.5		$1.9
Total Current Tax Expense	$0.2		$1.8				$0.5		$1.9
Deferred Tax Expense (Benefit)
Federal	$14.8			$11.2		$23.5				$20.4
State	(0.4	)	0.7			3.6			5.4
Investment Tax Credit Amortization	(0.2	)	(0.3		)	(0.6		)	(0.6		)
Total Deferred Tax Expense	14.2		11.6			26.5			25.2
Total Income Tax Expense	$14.4			$13.4		$27.0				$27.1

(a) For the quarter and nine months ended September 30, 2015, the federal and state current tax expense was minimal due to the utilization of NOL carryforwards from prior periods. The NOL carryforwards resulted from the bonus depreciation provisions of the Tax Increase Prevention Act of 2014 and the American Taxpayer Relief Act of 2012.

(b) For the quarter and nine months ended September 30, 2014, the state current tax expense reflected initiatives implemented on the 2013 federal and state tax returns to utilize tax carryforwards that may have expired due to NOL carryforwards from prior periods. State NOL and alternative minimum tax carryforwards remaining after utilization in 2015 will be carried forward to offset future income.

The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company would make a cumulative adjustment in that quarter.

For the nine months ended September 30, 2015, the effective tax rate was 18.0 percent (22.7 percent for the nine months ended September 30, 2014). The decrease in the effective tax rate from September 30, 2014, was primarily due to increased production tax credits. The effective rate deviated from the statutory rate of approximately 41 percent primarily due to production tax credits.

Reconciliation of Taxes from Federal Statutory
Rate to Total Income Tax Expense
Nine Months Ended September 30	2015			2014
Millions
Income Before Non-Controlling Interest and Income Taxes		$149.7			$119.4
Statutory Federal Income Tax Rate	35		%	35		%
Income Taxes Computed at 35 percent Statutory Federal Rate	52.4			41.8
Increase (Decrease) in Tax Due to:
State Income Taxes – Net of Federal Income Tax Benefit	2.6			4.8
Production Tax Credits	(27.0		)	(16.4		)
Regulatory Differences for Utility Plant	(0.7		)	(2.1		)
Other	(0.3		)	(1.0		)
Total Income Tax Expense		$27.0			$27.1

Uncertain Tax Positions. As of September 30, 2015, we had gross unrecognized tax benefits of $2.9 million ($2.0 million as of December 31, 2014). Of the total gross unrecognized tax benefits, $0.4 million represents the amount of unrecognized tax benefits included in the Consolidated Balance Sheet that, if recognized, would favorably impact the effective income tax rate. The unrecognized tax benefit amounts have been presented as reductions to the tax benefits associated with NOL and tax credit carryforwards on the Consolidated Balance Sheet.

ALLETE and its subsidiaries file a consolidated federal income tax return as well as combined and separate state income tax returns in various jurisdictions. ALLETE is no longer subject to federal examination for years before 2012, or state examination for years before 2010.